Financial Resource Management and Healthcare Reimbursement

Introduction:
There are many factors to be considered when examining organizational finances
and making decisions that have long-term effects on a medical practice. In
healthcare organizations, there are multiple payers that influence reimbursement.
There are external agencies such as the federal or state government, which may set
rate limits that impact revenues, and there are outside forces such as marketing
structure and competition that influence pricing of healthcare services. Managers
who oversee budgets and help to make financial decisions need an overall
understanding of the forces shaping this environment.
Read the attached “Financial Resource Management and Healthcare
Reimbursement.” For this task, you will act in the role of the manager as you
consider how to develop a financial plan for the clinic for the upcoming fiscal year,
including projections for the future.
Task:
A. Create an agenda to present to Dr. Ross in a preliminary meeting with him
before meeting with the entire physician group.

  1. Summarize the types of financial information the physician group would need to
    understand to have a clear picture of the clinic’s current financial status.
    a. Discuss what is influencing the pricing for the pediatric services.
    b. Discuss what is influencing revenue collection.
    c. Illustrate how this information should be analyzed to assist in the decisions to be
    made for the practice.
    B. Explain how issues presented in the scenario may impact the future revenue of
    the practice by doing the following:
  2. Discuss the consideration to be given to the pediatric endocrinologist’s request.
  3. Discuss the aspects that need to be considered in adding pediatric oncology.
  4. Present the components that should appear in a managed care contract with
    Indian Health Service.
    C. Discuss how you could develop a financial plan for the clinic using a management
    control process for the budget implementation.
    D. When you use sources, include all in-text citations and references in APA format.
    Note: When using sources to support ideas and elements in a paper or project, the
    submission MUST include APA formatted in-text citations with a corresponding
    reference list for any direct quotes or paraphrasing. It is not necessary to list
    sources that were consulted if they have not been quoted or paraphrased in the text
    of the paper or project.
    Note: No more than a combined total of 30% of a submission can be directly quoted or
    closely paraphrased from sources, even if cited correctly.List weblinks for all sources.

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 2

Financial Resource Management and Healthcare Reimbursement

Discuss what is influencing revenue collection

In order to have a clear understanding of the partnership’s financial status, it is important
for the physicians to understand several specific types of financial information with respect to the
activities of the partnership. The first type of financial information with respect to the pediatric
partnership is revenue. Revenue in this context refers to all money that the group receives as
payment for its services. The organization obtains its revenue by billing for various services
offered to patients. Wlashe and Smith (2006) assert that the main source of revenue as far as the
activities of the group are concerned is direct revenue received for inpatient pediatric care
offered to patients. Inpatient pediatric care refers to care offered to patients who actually visit the
partnership’s premises for pediatric care (Walshe & Smith, 2006). Some of the direct inpatient
services offered include: vaccination, x-rays. In addition to revenue received for the direct care
offered to patients, the partnership also receives revenues from various additional sources such as
consultancy fees, outpatient services outside the organization’s premises and revenue from
outreach services (Walshe & Smith, 2006). The main source of revenue for the practice is
reimbursement from healthcare organizations. In addition to the healthcare organization, some of
the organization’s revenues also come directly from the patient’s or rather the patient’s parents
(Fallon & Zgodzinski, 2011). This is due to the fact that some healthcare insurance providers do
not cover for all healthcare services offered therefore requiring the patient’s themselves to pay
for the specific healthcare services which are not covered (Fallon & Zgodzinski, 2011). For
instance, Kongsvedt (2012) asserts that some healthcare plans do not provide cover for
consultancy services, consequently, patients or rather their parents have to pay for these services
directly. Revenue is an important aspect as far as the operations of the organization are

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 3

concerned. This is because, it is the revenue collected that is used to cater for various costs
associated with running the organization (Gottret & Schieber, 2006). This therefore implies that,
the various financial aspects of the organization including the remuneration of partners are
directly related to the amount of revenue collected by the organization (Gottret & Schieber,
2006).
Factors Influencing Revenue Collection
One of the most important factors that influence revenue collection as far as the
operations of the practice are concerned is the sources of revenue of the organization itself. The
practice receives its revenue from a mix of payers including fall under direct payments by the
patients themselves and indirect payments, whereby payment for healthcare services is made
through third party healthcare organizations. Gottret and Schieber (2006) assert that a significant
portion of the group’s revenue comes from the patient’s themselves through their healthcare
organizations. Being a pediatric organization, most of the patients are usually covered by their
parent’s healthcare plans and it is therefore these healthcare plans which reimburse the
organization for the healthcare services offered. Medicaid and the State Children’s Health
Insurance Program (SCHIP) are two specific examples of healthcare organization that provide
medical insurance thereby catering for the financial aspect of various healthcare services
received by the patients who visit the clinic. According to Gottret and Schieber (2006) a change
in the nature of the payer mix is one of the factors that significantly affect revenue collection.
Payer mix in this context simply refers to the ratio of revenue collected from various parties
responsible for paying for the pediatric health care offered by the practice. A significant change
in the nature of the payer mix has the potential to impact revenue collection either positively or
negatively. A positive impact will result to an increase in revenue collection while a negative

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 4

impact will result to a decrease in the same. For instance, there has been an increase in the
number of number of patients from both Mediacaid and State Health Insurance Program and this
has had a significant impact as far as the partnership’s revenue collection is concerned thereby
impacting the pay that goes directly to the physicians.
Another aspect that directly impacts revenue collection is the nature of operations of the
practice. Gottret and Schieber (2006) explain that one of the most important aspects as far as the
operations of the organization are concerned is exploring ways of facilitating revenue growth. A
growth in revenue implies that the partnership will be in a better position to effectively meet its
obligations, including both its primary obligation of providing pediatric healthcare to patients
and its other obligations of providing satisfactory remuneration to the partners. In light of this
fact, it is important for the partnership to explore ways through which it can raise its operational
revenues (Fitzpatrick, 2003). The revenue collected by the practice can be significantly enhanced
through the adoption of certain operational aspects and programs that are likely to result in an
increase in the total amount of revenue collected. One of the suggestions put forward by one of
the partners is to contract a pediatric oncologist from another area of State just as is with the case
with the pediatric endocrinologist (Fitzpatrick, 2003). The partner points out that such a move
could be instrumental in increasing the revenue collected by the organization due to the fact that
it will avail the organization with an additional source of revenue (Fitzpatrick, 2003).
In addition to contracting a pediatric oncologist, another partner has cited taking up the
Indian Health Services contract as a means of enhancing revenue collection. This is due to the
fact that obtaining such a contract will increase the partnerships patient pool by enabling it serve
a significant patient population through outreach program (Fitzpatrick, 2003). Such a move is
bound to significantly improve the partnership’s revenue collection.

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 5

Discuss what is influencing the pricing for the pediatric services
Pricing is a fundamental aspect as far as the operations of the practice are concerned.
Pricing simply refers to how much the practice will charge for the various pediatric and other
related services that they offer. Crichon (1999) asserts that the two main aspects that will
determine the pricing for pediatric services offered by the practice are the revenue and
expenditure expectations of the organization. As already explained, revenue is the sum total of
all the money and other monetary resources received by the organization as consideration for
their services. On the other hand, expenditure refers to all money and other monetary resources
that are committed by the pediatric care organization for the purpose of ensuring that it is able to
meet its obligations as a healthcare organization (Crichon, 1999). Expenditure as far as the
operations of the organization is concerned should therefore encompass aspects such as the cost
of purchasing medication, the cost of administering medication, the cost of renting or leasing the
premises from which the pediatric care organizations operates from, the cost of providing
inpatient care, the cost of purchasing various medical equipments such as x-ray machines and of
course, the cost of remunerating the medical staff, in this case, the partners. Expenditure is
important aspects of financial information since it enables the organization in question make
future plans regarding the direction and objectives it wishes to attain (Crichon, 1999).
The pricing strategy for the pediatric practice should factor in the amount of money that
the practice will have to spend in providing pediatric care including the cost of purchasing and
maintaining the medical equipment and drugs, the remuneration of partners and any surplus
amount that the organization wishes to remain with after meeting all its financial obligations.
Crichon (1999) explains that the prices for various services should therefore be one that will
enable the practice attain cover all the aforementioned expenditure items and if need be, enable

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 6

the organization remain with a surplus amount which can be used in advancing the
organizational objectives. Moreover, projected changes in various revenue and expenditure items
are important when coming up with an appropriate pricing strategy. In this case, there are
various considerations as far as the practice’s projected revenue and expenditure are concerned
which should be factored in the pricing strategy. The request placed by some of the partners for
a pay rise for instance the pediatric endocrinologist directly imply a projected increase in
expenditure (Crichon, 1999). In case this request is granted, the pricing strategy should be
adjusted accordingly and this might see the price for pediatric care services rise. On the other
hand, in case there is an increase in projected revenue occasioned by an increase in client base,
such increase can be used to cater for the additional remuneration expenditure and in such a case,
the prices might remain unchanged.
In addition to basing the pricing purely on the revenue and expenditure aspects of the
practice, the pricing strategy should also be based on industry practices. There are various
pricing guidelines that are normally meant to guide both private and public healthcare
institutions on how to price their services. It is therefore important that any of the said
institutions base their individual pricing strategies on these industry standards (Crichon, 1999).
As such the prices set by such institutions should neither be way above or way below the
industry standards. Such a practice is meant to ensure profitability of both public and private
healthcare institutions while at the same time ensuring affordability of the said health services by
members of the public.

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 7

Illustrate how this information should be analyzed to assist in the decisions to be made for
the practice
The information regarding revenue, expenditure, factors influencing revenue collection
and factors impacting pricing decision is important as far as organizational decision making is
concerned. The practice can use this information to make important decisions such as whether or
not to award the salary increments requested by one of the partners. This is because, furnished
with all the relevant financial information, the practice will be in a position to make relevant
financial decisions including whether or not to increase or reduce expenditure items such as
salary increments (Crichon, 1999). Moreover, information on revenue and projected expenditure
will enable the practice make long term decisions regarding its operational objectives. For
instance, such information can be used by the partners to analyze whether the practice is
realizing its projected growth objectives. For instance, the information regarding revenue
collection including current sources of revenue and other opportunities for revenue collection can
be used by the organization to make decisions regarding the need to diversify the practice’s
sources of revenue.
Discuss the consideration to be given to the pediatric endocrinologist’s request.
As earlier stated, the practice’s pediatric endocrinologist has placed forward a request for
a stipend in addition to his regularly covered services as part of his remuneration package. In
order to understand the impact of the endocrinologist’s request as far as future revenue for the
practice is concerned, it is important to first and foremost describe two aspects of revenue and
these are gross revenue and net revenue. Gottret and Schieber (2006) explain that the gross
revenue refers to all monetary collections made by the organization before subtracting any
expenditure item. On the other hand, the net revenue refers to the revenue that is obtained after

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 8

all the expenditure items have been subtracted from the gross revenue. The net revenue collected
by the practice is calculated by taking the total revenue from all of the practice’s operations then
subtracting the total expenditure from the organizations operations. This therefore implies that
the projected net revenue from the practice’s operations is directly dependent on two items and
these are the projected total revenue collected and the projected total expenditure of the
organization. According to Gottret and Schieber (2006) this relationship can be simplified by the
assertion that an increase in total gross revenue coupled with a decrease in total expenditure will
result in an increase in net revenue. On the other hand, a decrease in gross revenue coupled with
an increase in expenditure is likely to result to an overall decrease in net revenue.
The stipend requested by the pediatric endocrinologist is an expenditure item. This
therefore implies that the stipend represents an increase in expenditure as far as the operations of
the organization are concerned. An increase in expenditure will result to a decrease in the net
revenue for the organization. Therefore, other things being constant, in case the practice decides
to honor the endocrinologist’s request, then such an act is likely to have a negative impact as far
as its revenue collection (net revenue) is concerned. In light of this fact, Dr. Ross should not
honor the endocrinologist’s request since the endocrinologist’s remuneration is already deemed
to be a fair one. However, such a decision should be based on the contribution of the
endocrinologist in terms of the revenue directly attributed to his services. In case, the revenue
directly attributed to the endocrinologist’s services is significant larger as compared to the
revenues attributed to the other partners, then it might be fair to consider enhancing his
remuneration package by honoring his request for a stipend. This is informed by the fact that in
case the endocrinologist decides to terminate his services on account of the stipend refusal, the

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 9

organization might end up losing more money than the case would have been had it simply
honored the endocrinologist’s stipend request.

  1. Discuss the aspects that need to be considered in adding pediatric oncology.
    One of the most important aspects as far as the enhancement of revenue collection is the
    procurement of the services of a pediatric oncologist. As earlier stated, one of the partners has
    proposed the introduction of pediatric oncology as one of the measures that will enable the
    organization improve on its revenue collection initiatives. Currently, the practice procures the
    services of a pediatric endocrinologist who visits once every month as one of the avenues
    through which it can imp rove on its revenue collection initiatives. It is therefore only logical that
    procuring the services of another specialist such as the pediatric oncologist is likely to result in
    higher revenues collected by the organization. This is an important observation since future
    potential of the practice in terms of revenue collection is directly dependent on the number and
    quality of services offered. Introducing an additional specialist such as the oncologist implies
    that the organization will be in a position to further diversify its services thereby enhancing its
    overall capacity to collect revenue.
    According to Kongsvedt (2012), the economic benefit associated with the introduction of
    another specialist, in this case the oncologist should be evaluated by analyzing both the cost of
    making such a move and the monetary returns that will arise due to implementation of this move.
    This therefore implies that the practice should take into account all additional expenses that will
    be associated with the introduction of oncology services vis-à-vis the income or revenue for that
    matter that will be directly attributable to the newly introduced oncology services (Kongsvedt,
    2009). In this case, some of the direct expenses that will be associated with the introduction of
    oncology services should include the remuneration package for the oncologist, the cost of

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 10

purchasing additional drugs to facilitate the introduction of oncology services and the cost of
purchasing any additional medical equipment that will be required by the oncologist. The main
revenue (gross revenue) item that will be attributable to such a move is the amount of money that
the practice will accrue directly attributable to the oncologist’s billing. The practice should only
consider introducing oncology services if and only if the net revenue figure is a positive one.
Moreover, the practice should also take into account the materiality of the net revenue. In other
words, the figure of the net revenue which represents the overall increase in future revenue
directly attributable to oncology services should be material to justify the practice’s investment
in such a move.

  1. Present the components that should appear in a managed care contract with Indian
    Health Service.
    One of the most important aspects as far as the operations of the clinic are concerned is
    its relationship with managed care organizations. According to Almgren (2006) It is important to
    ensure that any partnership entered into by the clinic that involves the services of a managed care
    organization be properly scrutinized with the aim of ensuring that such a move is in line with the
    overall objectives of the clinic. In order to ensure this objective is obtained, it is important to
    incorporate certain components in the contract between the clinic and Indian Health Service, a
    managed care organization. The first and perhaps most crucial component that should appear in
    the contract between the clinic and Indian Health Services are the nature and methodology of
    reimbursement (Almgren, 2006). This is informed by the fact that monetary reimbursement is the
    key aspect when analyzing the relationship between a clinic and a managed care organization.
    Ultimately, the success of this arrangement will be determined by the managed care’s ability to

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 11

meet its reimbursement obligations in an effective manner that will enable the clinic run its
operations smoothly.
In addition to monetary reimbursement, the second aspect that should appear in the
contract between the clinic and Indian Health Services is the overall objectives of the partnering
by the two outfits. Both outfits should clearly state that the key objective for their partnering is to
safeguard the health of the enrollees who are under the managed care organization.
The third and final component that should appear in the contract between the clinic and
Indian Health Services is an express declaration of competency on the part of the healthcare
organization. This can be achieved by incorporating information regarding past performance of
the organization that reflects its ability to effectively provide healthcare services. This is an
important step since it will enable the clinic make informed decision regarding its potential
relationship with the managed care organization.
Discuss how you could develop a financial plan for the clinic using a management control
process for the budget implementation.
Financial planning or budgeting is an integral aspect as far as the success of any
healthcare practice is concerned. Financial planning is basically a process of making projections
regarding various financial aspects of the healthcare practice in question. In order for one to
successfully undertake the process of financial planning, it is important for them to first and
foremost have a clear financial objective of the healthcare organization in question. A financial
objective defines what the organizations hopes to achieve in terms of the monetary outcome of
its operations. It forms the entire framework of the planning process including specific revenue
and expenditure aspects of the plan. Almgren (2006) notes that financial planning is a function
of management and therefore this task should be undertaken by the relevant managers as far as

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 12

the operations of the healthcare organization in question are concerned. It is therefore important
that healthcare organizations wishing to organizations attain financial efficiency to put in place
proper planning measures that integrate various aspects of management control process so as to
ensure that they have proper financial plans that reflect the operational objectives of the
organizations in question.
In order to develop an effective financial plan for the clinic using a management control
process, it is important to separate various financial aspects of the clinic operations and make an
independent analysis of each one of them. This should then be followed by an overall analysis of
all the individual aspects of the clinic so as to evaluate the overall financial standing of the clinic
(Almgren, 2006). The three most important financial aspects which should be used as a basis
first the preparation of a financial plan are expenditure, revenue and general operations.
Expenditure Financial Plan
The first step that I would take in developing a financial plan for the clinic is to come up
with an expenditure financial plan. An expenditure financial plan outlines all expenditure items
that relate to the day to day running of the clinic. As earlier stated, expenditure items include
things like the cost of hiring the clinic premises, supply costs such as the cost of procuring
medication and salaries and remuneration for the partners. The cost of hiring the premises should
encompass the leasing cost and any other cost directly associated with ensuring that the clinic’s
premises are in correct shape. Supply costs refer to the costs associated with ensuring that the
clinic is able to run smoothly (Wolf, 1998). Finally, the salaries and remuneration cost refers to
the salaries of the partners, any plans for salary increment and any additional salary that will be
occasioned by hiring of additional staff. For instance, in case the organization decides to go

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 13

ahead and procure the services of an oncologist or honor the endocrinologist’s request for
additional pay, this cost should be reflected here.

Revenue Financial Plan
The second step that would go into preparing the clinic’s financial plan is the preparation
of the revenue financial plan. Just like its name suggest, the revenue financial plan is a financial
plan concerning the revenue aspect of the clinic. The revenue financial plan should integrate all
sources of revenue for the clinic including revenue from billing of both inpatient and outpatient
services offered. This therefore implies that the revenue financial plan represents a projected plan
of items of income as far as the operations of the organization are concerned including both
operating and non-operating income. Operating income in the context of the clinic’s operations
refers to all such income that can directly be attributed to the clinic’s core function which is the
provision of pediatric services to patients. On the other hand, non-operating income refers to all
such income which cannot be directly attributed to eth clinic’s core function (Navarro, 2009).
This might include income from other unrelated investments that the partners might have
undertaken as a partnership and which for that matter do not constitute direct income. While
preparing the revenue financial plan, it is important to first and foremost ensure that both current
and future sources of revenue are taken into account (Navarro, 2009). In this context, in case the
organization decides to procure the services of an oncologist, the revenue financial plan should
incorporate all projected revenue which is directly attributed to the oncology division of the
practice. Such a move will enable the practice have a more accurate future outlook as far as its
operations are concerned.
Operational Financial Plan

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 14

The final aspect that will go into the development of the clinic’s financial plan is
operations. Operations refer to the day to day activities that facilitate the clinic to provide its core
function. The operational aspect of the clinic therefore combines aspects of both revenue and
expenditure. The operational financial plan is an important tool when it comes to implementing
the clinic’s financial objectives (Navarro, 2009). The operational financial plan is therefore the
financial plan that evaluates both revenue and expenditure aspects of the organization. It outlines
both projected income and projected expenditure and information contained in this plan is
therefore important when it comes to decision making process as far as the overall financial
performance of the clinic is concerned.

FINANCIAL RESOURCE MANAGEMENT AND HEALTHCARE REIMBURSEMENT 15

References

Almgren, G. (2006). Health Care Politics, Policy, and Services: A Social Justice Analysis.
London: Springer.

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